Two months after its dramatic announcement that it would be unable to pay off NIS 7.5 billion of debt, Lev Leviev's Africa Israel reached an agreement with the representatives of its long-term bondholders - the first step to an overall debt restructuring and rescheduling agreement.

After almost 11 hours of meetings, a deal was reached at 4 A.M. on Friday morning.

The deal has six major parts. Africa will issue stock privately or in a rights issue in which Leviev will invest significant sums of his own money, approximately NIS 750 million over four years. In addition, bondholders will receive shares of both Africa Israel and some of its subsidiaries in return for forgoing part of the debt. Also, Africa will issue new long and short-term bonds. Finally, bondholders will receive an immediate cash payment for part of the debt.

The final deal still faces a large number of hurdles, including approval from the banks, regulators, Africa shareholders, bondholders and the court. (See accompanying box.)

Africa Israel will issue two new series of bonds. The first, a billion shekels in total, will be for the short term and will be paid off within two years. It will be linked to inflation and pay 4.5% annual interest - as demanded by bondholders' representatives.

The second series will be for NIS 3.4 billion over 16 years. Payouts will begin in three years and carry on for 13 more years. The bonds will also be linked to the consumer price index and bear 7.25% annual interest - well above the 6% proposed by Africa's negotiator, Prof. Amir Barnea.

However, the sides have yet to agree on the guarantees that Africa will provide for these bonds or whether the institutional investors will be allowed to appoint a member to the company's board.

Leviev will have to put up NIS 750 million, but the bondholders made it easier for him by allowing him to spread it out over a period of four years. Africa will make a NIS 400 million rights offer by the conclusion of the agreement, of which Leviev will have to put up NIS 300 million. Leviev can decide how to invest the rest of the NIS 450 million, either in a private issue of shares or as part of a rights issue for shareholders. He will put up NIS 100 million within a year of the final agreement, and the rest within four years. These sums will be linked to half the rise in the CPI. If he is not able to come up with the money, the shares to be issued will be placed in the hands of the bondholders' trustee.

Leviev will retain control of Africa with 52.8% of the company's shares - at the end of the process. First, his present 75% holding will be diluted to 47.24%, which will then rise as he puts up the money for new shares. The public will have a 14.2% holding, and bondholders will then own 32.9% of Africa shares. This means institutional investors will receive almost one-third of Africa Israel shares. In return they will be giving up NIS 1.4 billion in bonds. This will dilute the public from its present 25% share to 14.2%, once the process is completed.

The money Leviev invests, along with cash now in the kitty, will be used to pay bondholders about NIS 550 million immediately upon concluding the final agreement - but it is still not clear which bondholders will get the cash and how much. This figure is a compromise between the NIS 600 bondholders demanded and the NIS 500 Barnea offered, and does not include the NIS 550 million Africa must pay out in 10 days to holders of its B9 bond series. These two sides will meet today on the matter.

In addition to shares in Africa Israel, institutional investors will also receive shares in Africa subsidiaries AFI Development and Africa Properties - in return for canceling NIS 1.2 billion of debt. The sides have yet to agree on the final division of shares, but the value of the shares will be based on the average between the firms' market and book values over the six months preceding the agreement. It is estimated that they will receive 17-20% of AFI Development and 16% of Africa Properties.

Other good news for Africa Israel is that it reached a deal with U.S. banks to refinance its largest American investment, the old New York Times building. This will improve Africa's equity position by NIS 1.5 billion.

At the end of the entire restructuring process, Africa will be left with only NIS 4.4 billion in debt, down from NIS 7.5 billion, and NIS 5 billion in owners equity. In addition, all its bond issues will be rerated and are expected to be rated close to A.

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